Econ exam 2

Speculation

the attempt to profit from future price changes

Futures

standardized agreements to buy/sell specific quantities at specific prices on a specific date

spot market

current market price

price floors

prevent prices from rising above a certain level and can cause shortges

price ceilings

prevent prices from falling below a certain level and can create surpluses. Five important effects: shortages, reductions in product quality, wasteful lines, a loss of gains from drade, & misallocation of resources

commodity taxes

taxes on goods or services

subsidy

where gov. gives money to consumer/producer. (whatever side bears more tax, recieves more benefit of a subsidy)

elasticity and taxes

more elastic demand = sellers pay more tax (ME supply = buyers pay more tax)

arguments for increased protectionism

prevent job less, child labor, national security, key industries

protectionism

policy of restraining trade through quoatas, tariffs, or other regulations that burden foreign producers but NOT domestic producers

tradable allowances

4 forms of command and control when firms are registerd to reduce polltion by a specific quantity and are allowed to trade allowances as they seem fit (always assume the world supply is perfectly elastic) WP > equilib. = export/WP<equil. = import

Coase theorem

if we have low transaction costs, how do we define property rights to get the efficient outcome? (command & controlm only works in cases where flexibility is NOT desired)

rent-seeking behavior

changing a product to avoid a high tax (Ex: useless pockets on Columbia t-shirts)

internalized

adjusting incentives so that decision makers take into account all the benefits and costs of their actions, private and social

equilibrium

price and quantity that maximizes social surplus

Pigouvian taxes/subsidies

tax on a good w negative externality or a subsidy on a good w positive externality efficient

deadweight loss

taxes raise revenue for the gov and reduce welfare for consumers and producers (in general, the revenue increased by a tax will be less than the loss in welfare of consumers and producers)

decreasing cost industry

prices go DOWN as quantity goes up

increasing cost industry

prices go UP as quantity goes down

short run

firm may stay in operation even if it is losing money. if it shuts down it will still pay fixed costs

long run

time period of sufficient duration that all costs are variable

marginal revenue

marginal revenue = price

profit

profit = (price - average cost)Quantity

total cost

TC= fixed costs (dont vary w quanitity) + variable costs (rise as Q increases)

to maximizes profits

where price = marginal cost

explicit costs

direct tangible costs that a firm incurs (labor, rent, utilities)

implicit costs

opportunity costs

economic profit

accounting profit - implicit costs

accounting profits

total revenue - explicit costs

positive externalities

when a companies actions create unintended benefits for others

negative externalities

unintended side effects that hurt others, but the company causing them dosent have to deal with the consequences financially

social surplus

total surplus (consumer, producer, and third party)

social cost

private costs + external costs

external costs

a cost imposed on a third party as a result of the transaction

private cost

a costs paid by the consumer or producer ( the two parties to a transaction)

trade quota

restriction on a quantity that can be imported

tariff

a tax on imported goods